"Mega-infrastructure systematically suffers cost overruns and contributes to sovereign debt distress"

"resources of local authorities, official external financing could also be used to help crowd in private sector funding for long-term projects across the region. Blending, for example, uses international grants or other concessional resources to enhance the risk-adjusted returns of private projects, helping to mobilize additional private finance. An additional source could be the use of equity- based regional pooled investment vehicles— capitalized by donors—that could be deployed to (co)finance infrastructure projects. Ultimately, the use of innovative financing could provide the much-needed flexibility and risk-reward ratios for investors that would help unlock much-needed social and development financing across the region. NAVIGATING A LONG PANDEMIC 17 INTERNATIONAL MONETARY FUND | APRIL 2021 After a pause in early 2020, international capital markets have reopened for sub-Saharan African countries. Côte d’Ivoire and Benin successfully placed about $3.5 billion of long-term Eurobonds (12–31 years) at yields of about 5–7 percent, and Ghana issued $3 billion at 6–9 percent. All countries used part of the proceeds to buy back existing Eurobonds, smoothing their maturity profiles over the next few years. Markets expect sub-Saharan African sovereign issuance to rebound to about $15 billion in 2021, led by countries such as Ghana, Nigeria, and South Africa. Regional frontier market economies could similarly use new issuance to buy back existing Eurobonds and smooth their redemption profile. Eurobonds maturing over 2021–23 amount to about $1–2 billion per year, but this will rise to about $8 billion in 2024 and 2025. As part of their debt management efforts, countries might take advantage of favorable market conditions to pre-finance or buy back this debt, replacing it with newer instruments with longer maturities and lower interest rates. However, countries should carefully monitor their foreign exchange risks and exposure to large creditors. Frontier market countries might also use favorable market conditions to help cover the COVID-19 policy response, replenish international reserves, and finance priority investments. Both maintaining macroeconomic stability in the short term and ensuring robust growth over the long term are crucial for debt sustainability. At a time of near-zero policy rates in advanced economies, prudent borrowing that finances public investment but does not worsen debt dynamics can boost growth and lower country risk premiums, as long as returns on investment are sufficiently high and are captured in higher domestic revenue. Increased investment can also help progress toward the Sustainable Development Goals. If low interest rates in advanced economies persist, the conditions for debt sustainability for market-access countries might warrant a careful reexamination. In the case of the United States—a reserve-currency issuer with deep, liquid markets and a very low country risk premium—former IMF Chief Economist Olivier Blanchard suggested that a prolonged gap between GDP growth and interest rates meant that public debt might have no fiscal cost (Blanchard 2019). For developing economies, Escolano and others (2017) have docu mented similarly large and negative interest rate-growth differentials, reflecting mainly negative real interest rates in these countries. However, the country risk premium for these countries is likely to be much more sensitive to debt levels and vulnerability. In sub-Saharan Africa, in the absence of acute shocks, most countries enjoy a negative interest-growth differen tial. The gap between the effective rate paid on govern ment debt and the GDP growth rate averaged about –3 percent in 2019 (see Eyraud and Yenice"